Disaster preparedness and response have gained increased attention in the United States as a result of terrorism and disaster threats. However, funding of hospital preparedness, especially surge capacity, has lagged behind other preparedness priorities. Only a small portion of the money allocated for national preparedness is directed toward health care, and hospitals receive very little of that. Under current policy, virtually the entire funding stream for hospital preparedness comes from general tax revenues. Medical payers (e.g., Medicare, Medicaid, and private insurance) directly fund little, if any, of the current bill. Funding options to improve preparedness include increasing the current federal grants allocated to hospitals, using payer fees or a tax to sub- sidize preparedness, and financing other forms of expansion capability, such as mobile hospitals. Alternatively, the status quo of marginal preparedness can be maintained. In any event, achieving higher levels of preparedness likely will take the combined commitment of the hospital industry, public and private payers, and federal, state, and local governments. Ultimately, the costs of pre- paredness will be borne by the public in the form of taxes, higher healthcare costs, or through the acceptance of greater risk.